Inside Apple's push for comprehensive corporate tax reform

When Apple Chief Executive Tim Cook testifies before the U.S. Senate this week, he will make his case for comprehensive corporate tax reform, arguing that the current tax system actually undermines the competitiveness of American companies.

Apple's push for tax reform was revealed in the company's written testimony, which was published on Monday. The testimony will be formally presented by Cook to the U.S. Senate Permanent Subcommittee on Investigation on Tuesday.

Apple Chief Executive Tim Cook will testify before the U.S. Senate and propose sweeping tax reform on Tuesday.

In his testimony, Cook will make the case that the current tax code was written for the "industrial era," and those concepts are unfairly being pushed on the current "digital economy."Apple admits that its proposed changes could lead to higher taxes for the company, but it's willing to accept that if it results in a fairer tax code that will improve "efficiency, flexibility and competitiveness."

"Apple has always believed in the simple, not the complex," the testimony reads. "This is evident in the company's products and the way it conducts itself. In this spirit, Apple has recommended to the Obama Administration and several members of Congress ??and suggests to the Subcommittee today ? to pass legislation that dramatically simplifies in the U.S. corporate tax system."

As part of its proposal, Apple will suggest four key points that the company believes comprehensive tax reform should include. Those points are:

Be revenue neutral

Eliminate all corporate tax expenditures

Lower corporate income tax rates

Implement a reasonable tax on foreign earnings that allows free movement of capital back to the U.S.

The goal of the recommendations, the company says, is to create "meaningful change" in the U.S. tax code. Apple has asserted that its suggestions "go well beyond what most U.S. companies propose."

"As both a pioneer and a participant in the American innovation economy, Apple looks forward to working with the Subcommittee on its efforts to encourage comprehensive reform of the U.S. corporate tax system," the official testimony reads. "Apple appreciates the opportunity to appear before the Subcommittee to contribute constructively to this important debate."

Apple's proposals come as the company is under government scrutiny for its large sum of cash kept overseas. As of the end of the March quarter, Apple had about $100 billion stashed overseas, and the company made clear it has no plans to repatriate that cash under current U.S. tax laws.Apple has asserted that its suggested tax code changes go "well beyond what most U.S. companies propose."

In its testimony, Apple lays the case as to why it believes it is currently following the government's tax laws without relying on so-called "tax gimmicks," such as holding money on a Caribbean island or having a bank account in the Cayman Islands.

When he appears before the Subcommittee, Cook also plans to argue that Apple is likely the largest corporate taxpayer in America. Apple paid nearly $6 billion to the U.S. Treasury in fiscal 2012, and expects to pay $7 billion this year. Apple has said these payments account for $1 in every $40 in corporate income tax the U.S. Treasury collected last year.

For these and other reasons, Apple is asking legislators to consider its suggestions for a massive overhaul of the U.S. tax code. In its testimony, the company even acknowledges that these changes may increase Apple's corporate taxes.

"Apple is not opposed to such a result if it occurs in the context of an overall improvement in efficiency, flexibility and competitiveness," the company said. "Apple believes the changes it proposes will stimulate the creation of American jobs, increase domestic investment and promote economic growth."

If you could do this stuff (I'm going to call this "research" for now), then you could tell us about it later (let's call this "reporting"), and it would be a comprehensive writing (usually referred to as an "article"), that would engender so much of feedback and discussion you might even be able to call it a "feature report" (or "feature" for short).

Wait a minute … scratch all that.

It's a good idea but I looked it up on the wiki and someone's done it first. (who knew!) Apparently lots of folks do it and it's referred to as "journalism" or "reporting."

The simplest, easiest fixes would be to: (i) Move to a territorial (not worldwide) system of taxation of non-home income (like most of the rest of the world); (ii) Lower the top rate 25% or less (like most of the rest of the world); (iii) Get rid of the stupidity that enables companies to keep/report one set of books for reporting (SEC) purposes and another for tax (IRS) purposes (like most of the rest of the world).

Btw, AI, what the heck does Apple's second point, "eliminate all corporate tax expenditures" mean?!

Tim Cook is gay, believes in climate change, and cares deeply about racial equality. Deal with it (and please spare us if you can't).

The simplest, easiest fixes would be to: (i) Move to a territorial (not worldwide) system of taxation of non-home income (like most of the rest of the world); (ii) Lower the top rate 25% or less (like most of the rest of the world); (iii) Get rid of the stupidity that enables companies to keep/report one set of books for reporting (SEC) purposes and another for tax (IRS) purposes (like most of the rest of the world).

Btw, AI, what the heck does Apple's second point, "eliminate all corporate tax expenditures" mean?!

Tax expenditures—special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates claimed by corporations, individuals, or both—support federal policy goals but result in revenue forgone by the federal government.

To the layperson,I reckon that means, special treatment for some based on government doing commerce engineering instead of just keeping commerce regular.

Edit - Definition above is the IRS's version. I shudder when I see the words "claimed by corporations" as if they weren't created by lawmakers. One Congress's tax expenditure = another Congress's "Corporate Welfare".Edited by ChristophB - 5/20/13 at 1:29pm

If there's anything that needs further investigating, it's the criminal activities being perpetrated by the IRS gestapo.

What a waste of time that hearing is going to be tomorrow. Apple hasn't done anything illegal, unlike the IRS. Current tax laws are a joke, and Apple has no obligation to repatriate overseas money until those moronic laws are changed and fixed.

If there's anything that needs further investigating, it's the criminal activities being perpetrated by the IRS gestapo.

What a waste of time that hearing is going to be tomorrow. Apple hasn't done anything illegal, unlike the IRS. Current tax laws are a joke, and Apple has no obligation to repatriate overseas money until those moronic laws are changed and fixed.

Congress makes the rules; they that have the power to tax (destroy). A simpler system takes power from those who use the power for political and social engineering (get votes). The tax code is written like a protection racket.

Tim... Love ya, guy, but, seriously?
- Be revenue neutral
Assure that the burden of paying for the infrastructure that makes our profits possible falls completely on the backs of working and poor people
- Eliminate all corporate tax expenditures
Make sure we get to keep all of the money we save by not having to hire all these lawyers and accountants.
- Lower corporate income tax rates
Free lunch for corporations
- Implement a reasonable tax on foreign earnings that allows free movement of capital back to the U.S.
Preferrably 1 or 2 percent... we have to make that yacht payment after all.

Tim... Love ya, guy, but, seriously?
- Be revenue neutral
Assure that the burden of paying for the infrastructure that makes our profits possible falls completely on the backs of working and poor people
- Eliminate all corporate tax expenditures
Make sure we get to keep all of the money we save by not having to hire all these lawyers and accountants.
- Lower corporate income tax rates
Free lunch for corporations
- Implement a reasonable tax on foreign earnings that allows free movement of capital back to the U.S.
Preferrably 1 or 2 percent... we have to make that yacht payment after all.

I don't think he implied any of your conclusions save the Elimination of corporate tax expenditures. The cost of tax code compliance is far from trivial.

If you could do this stuff (I'm going to call this "research" for now), then you could tell us about it later (let's call this "reporting"), and it would be a comprehensive writing (usually referred to as an "article"), that would engender so much of feedback and discussion you might even be able to call it a "feature report" (or "feature" for short).

Wait a minute … scratch all that.

It's a good idea but I looked it up on the wiki and someone's done it first. (who knew!) Apparently lots of folks do it and it's referred to as "journalism" or "reporting."

Do you ever wonder if these people who write this stuff here actually feel some sort of shame for what they produce. Do you think they loose sleep when we all rip on their inable to Report. Do you wonder if they actually went to school to learn how to write and if their teacher would be appalled by their writing and journalism skills. Do you think their boss at AI reads what put out and read our comments and realize the hired a monkey.

@gqb I'll keep it simple for you. Congress should implement a flat tax rate for individuals and corporations. If you make money you pay. No deductions just a flat rate. That way everubody has a stake in how government spends the money it collects and will be more likely to demand it is spent wisely. Of course a lot of lawyers and accountants would have to find a different line of work but I don't see any downside to that. :-)

@gqb I'll keep it simple for you. Congress should implement a flat tax rate for individuals and corporations. If you make money you pay. No deductions just a flat rate. That way everubody has a stake in how government spends the money it collects and will be more likely to demand it is spent wisely. Of course a lot of lawyers and accountants would have to find a different line of work but I don't see any downside to that. :-)

Taxes are nothing less than social engineering, punitively applied to whichever groups are least able to defend themselves politically.

@protagonistic - the underlaying problem with a flat tax has always been that the cost of running a life or a business has never been flat. The poor (or the first year start ups) pay a much larger percentage of their income for the bare necessities of surviving. Someone who makes $200,000 a year does not spend 10x's as much on food as someone who makes $20k. That's why income taxes are progressive - the recognition that the first $20-30K are bare subsistence for a family of 4, and by the time you reach $300K or more, you are profiting mightily from the country that provides your safety, and can afford to kick in proportionately more while still enjoying those benefits.
I would prefer to see regressive taxes - sales taxes, real estate taxes - removed, and a simplified but still progressive income tax take over. Side benefit? If all governance was funded by the highly visible income tax, everyone would be MUCH more aware of how much tax they are actually paying.

From the company that off shored billions (~10B) to avoid its tax liability to subsidized dividends for corporate shareholders, I find this 'lobbying' by Tim Cook completely disingenuous.

The pot called the kettle black ....

Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).

Edited by SolipsismX - 5/20/13 at 4:52pm

This bot has been removed from circulation due to a malfunctioning morality chip.

Who do you think paid that $6 billion in Apple taxes? We paid part of it every time we bought an Apple product. Corporate taxes are the same as sales taxes. Consumers pay for it when the company raises their prices to assure their profitability.

If a non American company sales you their product, then you might pay less at the expense of the American consumer. If the company can't maintain its profits in the uS, then the foreign company wins and jobs are lost.

We need to look beyond the surface and think more deeply about what really happens when high taxes are levied against American companies.

Those of you who might advocate higher taxes should look beyond the surface to understand how corporate taxes hurt American competitiveness and cost jobs in America.Edited by Zebra - 5/20/13 at 3:46pm

Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).

These threads could be more interesting if detail was included. For example no one seems to mention foreign tax credits. In your statement you just mentioned they don't strip their earnings with the use of subsidiaries loaning money at inflated interest rates or mess with transfer pricing and shift intangible assets to be licensed back at exorbitant rates. I suspect their real practices are somewhat conservative in recent years (in favor of avoiding too much bad PR), but the IRS wouldn't have the resources to audit them anyway. The one thing that annoys me whenever this topic comes up is that a few people will claim that routing through lower tax countries is no different than claiming direct expenses. It's completely disingenuous. There isn't an exact equivalent for individuals, but it would be closer to the use of foreign trusts than simply claiming dependents. If this gets those lobbyist funded idiots (congress) to actually do something, it might be a positive net result.

Quote:

Quote:Originally Posted by Zebra

Who do you think paid that $6 billion in Apple taxes? We paid part of it every time we bought an Apple product. Corporate taxes are the same as sales taxes. Consumers pay for it when the company raises their prices to assure their profitability.

This is the other topic that seems to come up in these threads, but it completely ignores the issue of elasticity. It's not a completely linear relationship in either case. If a company could charge more anyway without negatively impacting their business model over the longer term, why wouldn't they do so? Pricing models are never that simple.

Who do you think paid that $6 billion in Apple taxes? We paid part of it every time we bought an Apple product. Corporate taxes are the same as sales taxes. Consumers pay for it when the company raises their prices to assure their profitability.

If a non American company sales you their product, then you might pay less at the expense of the American consumer. If the company can't maintain its profits in the uS, then the foreign company wins and jobs are lost.

We need to look beyond the surface and think more deeply about what really happens when high taxes are levied against American companies.

Those of you who might advocate higher taxes should look beyond the surface to understand how corporate taxes hurt American competitiveness and cost jobs in America.

The companies aren't paying the taxes anyway. Also, saying 'can't maintain its profits' doesn't mean anything. Apple gets to keep 65% of all the profits no matter how much or little profit is made. Competitiveness is based on revenue, not profits.

Say they make $156b in revenue like in 2012. During the year, they spend $115b between manufacturing, staff, R&D etc and they come out with $41b profit, which the government wants 35% of = $14.35b. This leaves Apple with $26.65b.
Right now, they pay $6b so there's $8.35b difference.

What would that extra $8.35b go to pay for? We know what it pays for: nothing. They have no idea what to spend it on, which is why they have over $100b sitting overseas. If it was so essential for them to have this extra money, they'd be using it.

If they cut the rate from 35% to 25%, guess how much they'd pay. They ought to pay $10.25b but they'd still pay $6b. They wouldn't even be due to pay that much because they wouldn't repatriate all of the money.

With the current rates, they'd have $26.65b to use the following year instead of $30.75b at a 25% rate. That's hardly the difference between being competitive and not. It really boils down to the fact that worldwide rates are around 25% and US companies don't want to pay more than other countries. But they benefit from increased consumer spending due to the lower sales taxes.

Other countries would start complaining that the US has got it better because they have comparable corporate taxes and half the sales tax rates.

"Apple has always believed in the simple, not the complex," the testimony reads. "This is evident in the company's products and the way it conducts itself. In this spirit, Apple has recommended to the Obama Administration and several members of Congress ??and suggests to the Subcommittee today ? to pass legislation that dramatically simplifies in the U.S. corporate tax system."

I agree. I pay $700 to my accountant each year to figure my taxes - and others pay lots, lots more. I'd let the government keep all of that if they simply gave me a simple tax form to fill out that wouldn't require a CPA to do.

They could even keep the fundamental principles of progressive taxation that's part of our tax code while simplifying it. Simplest method - a flat/graduated tax:

They might have to adjust the numbers - and probably index them for inflation, but that would do the job and probably provide even more revenue than we have now - because so many wealthy people pay single digits in taxes.

The only downside is that a couple million accountants would be out of work - but I can live with that. They can get productive jobs.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

@protagonistic - the underlaying problem with a flat tax has always been that the cost of running a life or a business has never been flat. The poor (or the first year start ups) pay a much larger percentage of their income for the bare necessities of surviving. Someone who makes $200,000 a year does not spend 10x's as much on food as someone who makes $20k. That's why income taxes are progressive - the recognition that the first $20-30K are bare subsistence for a family of 4, and by the time you reach $300K or more, you are profiting mightily from the country that provides your safety, and can afford to kick in proportionately more while still enjoying those benefits.
I would prefer to see regressive taxes - sales taxes, real estate taxes - removed, and a simplified but still progressive income tax take over. Side benefit? If all governance was funded by the highly visible income tax, everyone would be MUCH more aware of how much tax they are actually paying.

Fairtax.org Nobody pays taxes until they purchase something at retail. No businesses pay taxes either. Nobody below the poverty line pays any taxes. The actual rates go down for most people with this plan. The only people who pay 3% more with the transition are people between 56 and 65 years old. They lose out on the transition period for a few years.

This plan lets people save more money faster due to income not being taxed. This plan entices foreign companies to bring manufacturing to the USA because they will pay no taxes on the income they earn. This will bring millions of manufacturing jobs to the USA.

No more tax forms. No more tax man threats. No more federal tax liens.

@protagonistic - the underlaying problem with a flat tax has always been that the cost of running a life or a business has never been flat. The poor (or the first year start ups) pay a much larger percentage of their income for the bare necessities of surviving. Someone who makes $200,000 a year does not spend 10x's as much on food as someone who makes $20k. That's why income taxes are progressive - the recognition that the first $20-30K are bare subsistence for a family of 4, and by the time you reach $300K or more, you are profiting mightily from the country that provides your safety, and can afford to kick in proportionately more while still enjoying those benefits.
I would prefer to see regressive taxes - sales taxes, real estate taxes - removed, and a simplified but still progressive income tax take over. Side benefit? If all governance was funded by the highly visible income tax, everyone would be MUCH more aware of how much tax they are actually paying.

the problem with this is it punishes those who work hard to get ahead. Why am i forced to pay more taxes than someone who makes less money? Basically i should just slack off, just skate by so as i do not get to keep what i work for. the only 'fair' way to tax is the fair tax (http://www.fairtax.org), _minus_ the prebate. Everyone should pay the same tax rate, period. Anything else is simply _stealing_ from the "rich" to give to the "poor"